The Financial Times We Live In: An Expanded AM Report

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In recent reports, I have pointed out the importance of being hedged against geopolitical risk. Personally, I follow $SPX for high quality data and I invest in $SPY. Why? $SPY provides for an overnight EXTO order. While not perfect, GTC plus EXTO orders are one important form of protection against overnight geopolitical shocks. Insurance puts are another hedge, and in today’s world, I consider the combination of GTC plus EXTO orders and a married put to be fundamentally important.

Each evening, I synthesize multiple pieces of quantitative data to arrive at the AM Report. When a shock occurs, I naturally go looking for evidence that someone knew …e.g. unusual options activity (UOA) on the put side. So, was there any evidence that might have caused one to tighten up a stop or roll up an insurance put, yesterday?

The answer: very little. For the data that I track, only two metrics threw down yellow flags: 1) a spike (100% increase) in long gamma, and 2) an uptick in the one-week GJR-GARCH volatility forecast – in divergence from the rally and drop in vol-of-vol.

If you look for unusual options activity in the near-term options on $SPX, you’ll find examples of bearish speculation. Take for example a 3500% change in volume as a percent of open interest in a put at the 3160 strike. There are similar isolated instances of large lots trading in near-term short calls.

Conclusion

My current portfolio remains long $SPY (hedged by married puts), long gold, and long bonds (vanilla and laddered).